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Evidence on book-tax differences and disclosure quality based on the notes to the financial statements

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  • Evers, Maria Theresia
  • Finke, Katharina
  • Matenaer, Sebastian
  • Meier, Ina
  • Zinn, Benedikt

Abstract

The German Accounting Law Modernization Act (BilMoG) represents a change in paradigm with regard to the traditionally close relationship between financial and tax accounting in Germany. At the same time, requirements on the disclosure of deferred taxes were revised considerably. We make use of these new disclosure provi-sions to disaggregate firms' deferred tax position and to analyze the components of temporary book-tax differences that add to the reporting gap in Germany. To this end, we apply a unique dataset of hand-collected information from individual financial statements for the fiscal year 2010. We find considerable differences between financial and tax accounting and observe that temporary book-tax differences are mainly associ-ated with mandatory differences in accounting for provisions. The scope and quality of tax-related disclosures vary substantially and the overall disclosure quality is low. In order to identify the determinants of the heterogeneity of disclosure quality, we con-struct an index for voluntary and mandatory disclosure of deferred tax information and conduct multivariate analyses to explain firms' disclosure decisions. We show that the recognition of deferred tax assets and liabilities on the face of the balance-sheet is sig-nificantly and positively related with disclosure quality in the notes to the financial statements. Further, our results suggest that larger firms are more likely to have high-quality tax disclosures and that high implementation costs could also explain the ob-served shortfalls in disclosure quality. Moreover, we find that different reporting incen-tives might apply if reporting on losses is assessed in isolation. We use these insights to derive implications for the discussion about whether and how to reform disclosure re-quirements under German GAAP.

Suggested Citation

  • Evers, Maria Theresia & Finke, Katharina & Matenaer, Sebastian & Meier, Ina & Zinn, Benedikt, 2014. "Evidence on book-tax differences and disclosure quality based on the notes to the financial statements," ZEW Discussion Papers 14-047, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:14047
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    References listed on IDEAS

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    Cited by:

    1. Gebhardt Heinz & Siemers Lars-H. R., 2017. "Die relative Steuerbelastung mittelständischer Kapitalgesellschaften: Evidenz von handelsbilanziellen Mikrodaten," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 66(1), pages 1-35, April.
    2. Flagmeier, Vanessa & Müller, Jens, 2016. "Tax loss carryforward disclosure and uncertainty," arqus Discussion Papers in Quantitative Tax Research 208, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Evers, Maria Theresia & Meier, Ina & Nicolay, Katharina, 2016. "Book-tax conformity and reporting behavior: A quasi-experiment," ZEW Discussion Papers 16-008, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Keywords

    book-tax conformity; book-tax differences; deferred taxes; disclosure quality; tax reporting;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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